June 11 (Bloomberg) -- Australia’s dollar fell to the
lowest in almost three years versus the greenback after home-loan approvals grew at the slowest pace in three months,
boosting the case for further cuts to borrowing costs.

Australia’s currency slid for a third day amid speculation
the Federal Reserve will reduce stimulus this year, narrowing
Australia’s interest-rate advantage. The Aussie and New Zealand
dollars dropped against the yen after the Bank of Japan kept
monetary policy unchanged, disappointing investors who had
expected it to introduce measures to stem market volatility. The
kiwi dollar was set for its lowest close in a year.

“Housing is the one area most likely to make up for the
mining investment downturn, and it’s disappointed,” said Joseph
Capurso, a Sydney-based foreign-exchange strategist at
Commonwealth Bank of Australia. “You’ve got to say that the
Aussie’s going to keep on falling.”

Australia’s dollar slid 1.1 percent to 93.61 U.S. cents as
of 5:18 p.m. in Sydney after touching 93.54, the lowest since
September 2010. New Zealand’s currency fell 0.9 percent to 78.34
U.S. cents, set for its weakest close since June 2012. The
Aussie dropped 1.6 percent to 92.02 yen, while the kiwi tumbled
1.4 percent to 76.94 yen.

Australian home-loan approvals rose 0.8 percent in April
from the month before, the smallest increase since January.
Economists surveyed by Bloomberg News forecast a 2 percent rise.
March’s gain was revised to 4.8 percent from 5.2 percent.

Reserve Bank of Australia Governor Glenn Stevens and his
board reduced the overnight cash-rate target to a record 2.75
percent last month. A benign inflation outlook gave them scope
to help industries including construction to rebalance growth
away from resource investment.

Rate Bets

As of yesterday, traders priced in 54 basis points of
Australian rate cuts within 12 months, the most since May 7,
according to a Credit Suisse AG index based on swap contracts.
Today, the gauge indicated a reduction of 40 basis points.

In the U.S., economists predict retail sales rose at the
fastest pace in three months in May amid an improving job
market. The median estimate in a Bloomberg poll ahead of the
June 13 report is for a gain of 0.4 percent.

Fed policy makers led by Chairman Ben S. Bernanke will trim
their quantitative-easing program to $65 billion of bond
purchases a month at their Oct. 29-30 meeting, from the current
level of $85 billion, a separate Bloomberg survey showed.

Australia’s 10-year government bond yield jumped 11 basis
points, or 0.11 percentage point, to 3.41 percent. The extra
yield on the security over its U.S. equivalent shrank to 105
basis points yesterday, the least since June 2007.

U.S. Taps

“Our high interest rates relative to the U.S. have kept
the Aussie higher, as has our stronger economic growth, but as
U.S. growth picks up, that has started to come away,” said Hans
Kunnen, chief economist in Sydney at St. George Bank Ltd. “If
they’re going to turn off the taps in the U.S., the dollar rises
and the Aussie weakens.”

The Australian dollar has tumbled 7 percent in the past
month, the most among 10 developed-market currencies tracked by
Bloomberg Correlation Weighted Indexes. The New Zealand dollar
is the next biggest decliner, falling 6 percent.

“We expect AUD downside to become increasingly limited
from current levels,” Manuel Oliveri, a foreign-exchange
strategist at Credit Agricole CIB in London, wrote in a research
note released before the housing data. “Market expectations for
two more interest rate cuts by the RBA over the coming twelve
months may prove excessive, unless domestic growth conditions
weaken considerably further.”

Aussie RSI

The Australian dollar’s relative strength index versus the
greenback was at 30, a sign some traders see as a sign that an
asset’s price has fallen too rapidly and is poised to reverse
course. The New Zealand dollar’s RSI against its U.S.
counterpart was at 34.

Both South Pacific currencies fell against the yen after
the BOJ kept its monetary stimulus unchanged and refrained from
measures to quell volatility in the bond market.

“Those betting that the BOJ would do something were left a
little disappointed,” said Jonathan Cavenagh, a strategist at
Westpac Banking Corp. in Singapore. “People have been very
short yen against other Asian currencies and the likes of Aussie
and kiwi, so I see risk that some of those trades get unwound
further from here.” A short is a bet that an asset price will
fall.

Wheeler Intervention

Since Reserve Bank of New Zealand Governor Graeme Wheeler
said on May 8 that he was intervening to weaken the kiwi, after
it gained as much as 15 percent versus the greenback from last
year’s low, the currency has declined about 6 percent. That’s
the biggest drop among Group of 10 currencies after the more
than 7 percent slide in Australia’s dollar. Speculators have
pared bullish bets on the kiwi to the least since July as
analysts cut their year-end forecasts to the lowest in four
months.

The central bank has resorted to manipulating the kiwi to
buoy the economy as the risks of inflation and a housing bubble
prevent it from reducing interest rates from an already record
low. Wheeler’s intervention talk came just as an improving U.S.
economy fueled a broad rally in the U.S. dollar.

“His timing was impeccable, you’ve got to give him credit
for that,” said Sam Tuck, a senior foreign-exchange manager at
ANZ Bank New Zealand Ltd. in Auckland. Wheeler’s comments
“reinforced the idea that the New Zealand dollar is not a one-way bet.”